Nintendo said Monday it will release the successor to its hit Wii console next year. But how will that launch impact the business of video game hardware?
Nintendo

One of the most potentially damaging things a consumer electronics company can do to one of its existing products is confirm its replacement. So when Nintendo announced yesterday that its Wii "successor" would launch next year, the obvious question was how would the news affect its highly successful but flagging current-generation console?

On the one hand, would-be Wii buyers could decide to pocket their wallets and wait until the new device comes out. On the other, they could rush to stores to buy one now, thinking that the new system will cost significantly more when it hits store shelves.

And Nintendo isn't the only one in this boat. While neither Microsoft nor Sony have made any announcements about successors to their Xbox 360 and PlayStation 3 consoles, respectively, rumors out last week suggested that new versions of both those platforms could be in consumers' hands by 2014.

Yesterday, Nintendo confirmed that it would release the new console next year and said it would show a playable version, as well as talk about technical specifications, at E3 in June in Los Angeles. But sources have told video game blog IGN that the new system is likely to get a big performance boost compared with the existing Wii, a device that used a strong appeal with casual gamers to overcome the technical superiority of its rivals, the Xbox 360 and PlayStation 3.

Current consoles

With news of a new Nintendo console coming in 2012 and credible rumors of a new Xbox and PlayStation in 2014, what do you think is the fate

Sales will plummet for each system as gamers play the waiting game.
Companies will continue lowering the price of current-gen systems to spur sales.
Each system will just keep selling and selling. (Look at the PlayStation 2.)
With a big head start, new Nintendo console will bury Xbox 360 and PlayStation 3.

"The system will be based on a revamped version of AMD's R700 GPU architecture...[and will] out perform the PlayStation 3's Nvidia 7800GTX-based processor," IGN reported last week. "Like the Xbox 360, the system's CPU will be a custom-built triple-core IBM PowerPC chipset, but the clocking speeds will be faster. The system will support 1080p output with the potential for stereoscopic 3D as well, though it has not been determined whether that will be a staple feature."

According to several industry observers interviewed for this article, what appears likely is that in the short term, Nintendo will need to lower the price of the Wii to keep the system's sales, which have already been losing steam, from cratering completely. And Microsoft and Sony will most likely sit back and bide their time, riding continued impressive sales that have been bolstered by the release of the Kinect for Xbox and Move controllers.

Indeed, say these observers, buyers for current-generation consoles are mainly casual gamers these days, people who are less likely to be swayed one way or another by news or rumors of future systems.

"For hard-core gamers and early adopters, this [news] would certainly be a sign that they should hold off on making any new console purchases," said Brian Crecente, the editor in chief of the video games blog Kotaku. "But most of this group of people already own the consoles. The bigger, mainstream audience doesn't seem as plugged into these sorts of things. For Nintendo...the splash the revelation of a new [console] due next year has made, it's sure to slow down some of their sales. But 2014 is a lifetime for people new to gaming looking at the PS3 and Xbox 360."

Crecente added that he thinks it's clear that Nintendo's announcement is tied to the company's "recognition that sales of the Wii have already started to slow tremendously...Most first-wave gamers and families interested in the Wii already have the console. At this point, I think Nintendo is already looking forward to their new console and how they can use it to once more broaden the gaming market."

But some see that the Wii still has life left. "The announcement of Wii's successor will do little to impact the Wii's current sales trajectory," said video games analyst Jesse Divnich of Electronic Entertainment Design and Research (EEDAR). "At this point, the primary target market for the Wii is the price-sensitive consumer, and the price-sensitive consumer is unconcerned and likely unaware of new hardware announcement. The announcement of the 2012 Ford F-150 probably does little to deter sales from consumers looking to buy a used 2005 Ford F-150. Same principle."

Wii pricing
Perhaps the biggest question surrounding the future of the Wii is what Nintendo will charge for it going forward. Currently, most retailers are charging $169 for a console bundle that includes a Wii Motion Plus controller and some software. And there has also been some speculation that Nintendo will drop that to $150 by May 15. Whatever the number, everyone seems to agree a price cut is in the works.

But analyst Colin Sebastian of Lazard Capital Markets said that he thinks Nintendo could eventually slash the price to as low as $99, though he said that it might not happen right away.

Asked for comment, Nintendo reiterated the highlights from its Monday announcement.

In the absence of solid information about the Wii successor, the key question becomes whether Nintendo will try to match, or surpass, the power and performance of the Xbox 360 and PlayStation 3. Although all three machines launched within a year of each other in 2005 (Xbox) and 2006 (Wii and PS3) and were originally lumped together as the three "next-generation" consoles, it was apparent almost right away that the Wii was in a different category. Eschewing high-definition and focusing instead on simple and easy game play and a new, highly intuitive controller, the Wii has always lagged behind its competitors on specs.

But some think that Nintendo now has a window in which it can catch up with or even pass its rivals. And while the price tag of the new Nintendo console is almost certain to be higher when it launches next year than either of Microsoft's or Sony's current-gen entrant--IGN predicted the price could be between $350 and $400--some expect the new machine to showcase Nintendo's attempt to capitalize both on its mastery of the mainstream, casual market and its hugely successful first-party publishing operation.

"Expect the Wii's successor to have the processing power that will likely exceed that of the PS3 and Xbox 360, but expect it to be utilized in an original fashion," said Divnich. "The successor to the Wii won't simply be a device that is there to flex its graphical muscle. Instead it will flex its versatility and flexibility. I believe Nintendo is trying to create the true all-in-one demographic platform this time around. It will definitely include components that will entice both the mainstream and core gaming markets, whereas the Wii was primarily viewed as a mainstream family entertainment console."

Those components may very well include a new controller system that moves the yardsticks forward significantly in some fashion. Indeed, some say such innovation is essential to the success of Nintendo's next offering. One rumored approach would be a touch screen built into the controller.

And with as much as a two-year advantage over the next offerings by its rivals, Nintendo's new machine would seem to have a golden opportunity to grab a big piece of the market before Microsoft and Sony can even get in the game. But it's crucial that Nintendo not simply leap frog the next Xbox and PlayStation, some say. And that dynamic could pose a real problem for Nintendo, which is starting out at a big disadvantage technologically.

"If it's more powerful than the PS3 and the PS4 kicks its [butt], they screwed up," said Michael Pachter, an analyst with Wedbush Morgan Securities. "I think they have to come out with something that's [on par] with the PS3 and innovates on the controller."

But others aren't so worried about Nintendo's prospects and expect it to do what it has to do to impress.

"I think Nintendo has created an expectation among both gamers and the mainstream that their new products need to innovate in ways we've never thought of," Crecente said. "The Wii popularized motion gaming, [and its 3DS portable console] is fighting to make 3D gaming relevant. Rumors of the new Wii and its controller seem to indicate the company's attempt at creating a brand new paradigm for gaming. It's still a little unclear what that will be, but it sounds like it's built around the notion of local multiplayer gaming, and the use of much more powerful controllers."

Microsoft and Sony
For Microsoft, Nintendo's announcement was no surprise and shouldn't affect its plans for the Xbox in any way, said spokesman David Dennis. Though he wouldn't reveal any of the company's plans, he did point out that at E3 last year, Microsoft alluded to the Xbox being about halfway through its lifecycle. With the Xbox having come out in 2005, that would mean a 2014 release of its follow-up is right about on target, if not a bit early.

To date, Nintendo said it has sold 86 million Wiis worldwide, and according to the NPD Group, 35.33 million in the United States. By comparison, Microsoft has sold only 26.78 million Xboxes in the U.S., and Sony just 16.5 million PS3s, NPD said. Worldwide, Sony said earlier this month that it had passed the 50-million-unit mark for the PS3, something Microsoft said it achieved in January.

But Dennis said the Xbox is sitting pretty right now, having seen sales go up in each of the last two years, with this year looking like the third straight. And that's not even counting the success Microsoft has had with its Kinect for Xbox controller, which has sold more than 10 million units since being released last November.

Sony, too, sees itself in a position that doesn't require immediately replacing the PS3. "Companies will bring new consoles to market when their existing products become technologically obsolete and stop delivering great experiences to consumers," said Dan Race, director of corporate communications for Sony Computer Entertainment of America. "PS3 doesn't face these challenges today. In fact, the PS3 is just now hitting its stride with unit sales and market share on the rise."

Ultimately, then, the immediate impact of the announcement of Nintendo's next console is minimal in the immediate future. But it's clear that the next few years are going to be full of the same kind of jockeying for position and one-upsmanship that marked the current generation.

For Microsoft and Sony, the game is going to be to continue to try to win over the Wal-Mart gamer, one who wants a top-notch game system but doesn't want to shell out a lot. At $200 or $250, the Xbox 360 and PS3 are great bargains, especially when stacked up against next-generation machines that could once again cost $400, $500, or even $600.

But Nintendo's best path to repeating the success of the Wii is to boost the power of the new machine and leverage the huge advantage it has in first-person software, such as its Mario and Zelda franchises, the observers said. And, of course, hoping that gamers are used to paying less than $300 for a new console.

"I think Nintendo's making a bet that when [Microsoft and Sony] choose to advance to the next level, no one's going to play," Pachter said.